Public company info - Bracell Limited , 01768.HK
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Bracell Limited, 01768.HK - Company Profile
Chairman YING, John Jeffrey
Share Issued (share) 3,421,000,000
Par Currency U.S. Dollar
Par Value 0.05
Industry Chemical Products
Corporate Profile Business Summary: Bracell Limited (“Bracell’ or the “Company” and together with its subsidiaries referred to as the “Group”; HKSE stock code: 1768), formerly known as Sateri Holdings Limited, is a leading player in the global specialty cellulose market. The Company has been listed on the Stock Exchange of Hong Kong since December 2010. Bracell’s operations in Brazil consist of a secure renewable plantation that grows eucalyptus trees on its 150,000 hectares of freehold land, and a state-of-the-art mill to produce both the specialty-grade dissolving wood pulp and rayon-grade dissolving wood pulp. They are natural raw materials and key ingredients to a diverse range of everyday items from textiles, baby wipes and eyeglass frames, to soft ice-cream, sausage casings and pharmaceuticals, as well as industrial products such as high-performance tire cords. In December 2014, the Group completed the disposal of its viscose staple fiber business in mainland China to a company controlled by its ultimate controlling shareholder. The Company has been renamed Bracell Limited as part of a corporate rebranding initiative following the disposal. Bracell’s main facility of Bahia Specialty Cellulose in Brazil is the third largest dissolving wood pulp producer in the world with an annual production capacity of 485,000 metric tons. It is also the world’s second largest specialty-grade dissolving wood pulp producer in terms of potential production capacity. Bracell’s integrated forestry and mill operation in Brazil – from wood plantations to state-of-the-art production facility – provide a solid base to the Group’s ongoing product quality and reliability enhancement to meet stringent customer specifications. The Group will continue to further its efforts on increasing its market share in the specialty-grade dissolving wood pulp segment. Bracell attaches high priority to its social and sustainability responsibilities and is committed to preserving and protecting the environment in every aspect of its operations. Performance for the year: For the year ended 31 December 2015, the Group’s revenue from continuing operations declined by 7% to US$444 million despite a 3% increase in the sales volume, owing to a 11% and 9% drop in the ASPs of specialty-grade DWP and rayon-grade DWP respectively. Cost of sales declined notably by 9%, gross profit declined by 5% to US$170 million and EBITDA dropped by 8% to US$184 million. Business Review: Following the completion of the disposal of its viscose staple fiber (“VSF”) business in December 2014, the Group is now a leading global pure-play dissolving wood pulp producer. The continuing operations of the Group comprise the production and sale of both specialty-grade and rayon-grade dissolving wood pulp (“DWP”) at its Bahia Specialty Cellulose (“BSC”) plant in Brazil using wood resources grown from its own eucalyptus plantations. In 2015, the Group’s production volume reached record high, as a result of its continued focus on operational excellence. For specialty-grade DWP, the Group continued to make progress in penetrating into this segment. Sales volume during the year increased by 4% amidst slower growth in demand and the inventory destocking of both acetate pulp and acetate tow that took place especially in the first half of the year. In the face of continued oversupply in the segment, product prices faced pressure as competitors reacted with more aggressive pricing strategies in order to maintain their market share.As such, the Group’s average selling price (“ASP”) for specialty-grade saw a decline of 11% during the year. In the rayon-grade DWP segment, the Group’s sales volume increased by 2%. Under a three-year pulp supply agreement which became effective on 1 January 2015, all rayon-grade DWP was sold to a company controlled by the ultimate controlling shareholder of the Company at market prices. During the year, rayon-grade DWP spot market prices rose from US$800 per metric ton in the beginning of the year to approximately US$900 per metric ton at the end of 2015. Despite this, the Group’s ASP for rayon-grade recorded a decline of 9% compared to 2014. This was due to the fact that for most of 2014, the Group sold all its rayon-grade DWP to the disposed VSF plants in China at the price undertaking accepted by the Ministry of Commerce of China, which was higher than the prevailing spot market prices. Despite increased sales volume for both specialty-grade and rayon-grade DWP, lower ASPs led to a 7% decline in the Group’s revenue to US$444 million. The more efficient operations of the Group’s mill in Brazil, and the depreciation of the Brazilian Reais (“BRL”) against the US Dollar (“USD”) during the year contributed to lower cost of sales, which decreased by 9% to US$274 million. Gross profit dropped by 5% to US$170 million due to lower ASPs. The selling, general and administrative expenses also declined by 7% during the year, reflecting the depreciation of BRL, as well as the Group’s cost savings efforts across all aspects of its operations.EBITDA decreased by 8% to US$184 million. Gross profit and EBITDA margins were comparable to 2014 at 38% and 41% respectively despite lower ASPs, due to lower cost as a result of higher capacity utilization, better cost efficiencies and the depreciation of BRL against the USD. In 2015, there was a decrease in fair value of the forestation assets of the Group of approximately US$8 million which compared with a decrease of US$21 million in 2014 mainly arising from the depreciation of the BRL. From 1 January 2015, two of the Group’s subsidiaries which held a majority of its forestation assets changed their functional currency from USD to BRL and as a result, the majority of the effect of the depreciation of the BRL on the fair value of the forestation assets during the current year is reflected in other comprehensive income. Profit after tax from continuing operations improved by 272% to US$57 million, up sharply from a low base of US$15 million. In 2014, profit was negatively impacted by the non-cash write off of deferred income tax assets, which was non-recurring in 2015. The decrease in the fair value of forestation and reforestation assets was also lower in 2015 compared to 2014. Profit attributable to shareholders improved by 55% to US$58 million. Specialty-grade pulp Specialty-grade pulp is the natural key ingredient of a wide array of everyday use consumer products. The Group’s products are manufactured to a high degree of purity, and are mostly used for applications such as acetate for cigarette filters and eyeglasses frames, pharmaceutical tablets and high-performance tire cords. Total global demand for specialty-grade pulp is approximately 1.4 million metric tons annually, and is estimated to grow at approximately 2% per year from 2014 to 2019, according to Hawkins Wright (an independent consultancy providing market intelligence and business information relating to international forest products). Barriers to entry into this market are high owing to the advanced technological know-how required to produce the high purity products, the stringent customer specifications and long product qualification cycle. As a result, market prices for specialty-grade pulp trended upward at approximately 8% compound annual growth rate (“CAGR”) in the past decade, up to 2013. In 2013, one of the major industry players added significant capacity into this segment. Even though this additional supply has now been removed, supply remains abundant while demand growth has been subdued. This has placed pressure on product pricing as competitors adopted more aggressive pricing strategies to maintain their market share. During the year, amidst slower growth in demand for acetate and temporary destocking of acetate pulp and acetate tow, the Group’s sales volume in this segment was resilient against the market situation and managed to increase its sales volume by 4% to 118,310 metric tons. However, the Group recorded lower ASP due to continuing pricing headwinds. Nevertheless, the Group continued to enhance product quality and cost competitiveness and is confident to further penetrate this segment going forward. Rayon-grade pulp Rayon-grade pulp is the principal raw material ingredient used for the production of VSF. China is the largest rayon-grade pulp market by demand, according to Hawkins Wright and China Chemical Fibers and Textile Consultancy. With effect from 1 January 2015, under a three-year pulp supply agreement, the Group supplies rayon-grade DWP produced by BSC only to a company controlled by the ultimate controlling shareholder of the Company at prevailing open market spot prices. This enables the Group to focus its efforts on the production and sale of specialty-grade DWP, with a view that all rayongrade DWP produced by BSC will be contractually purchased in its entirety under the pulp supply agreement at prevailing open market prices. This arrangement also provides BSC with certainty on the capacity utilization of its mill in Brazil by ensuring it is operating at the optimal level, thereby allowing economies of scale and better cost competitiveness. The Group sold 341,984 metric tons of rayon-grade pulp in 2015, an increase of 2% from the previous year. During the year, VSF pricing environment improved from the second quarter, consequently enabling rayon-grade pulp producers to raise their prices. Meanwhile, some Chinese DWP players reverted to producing paper pulp during the year, which mitigated the oversupply situation. As a result, rayon-grade market prices rose from US$800 per metric ton in the beginning of the year to approximately US$900 per metric ton at the end of 2015. Nevertheless, the Group recorded lower ASP for rayon-grade pulp. This was due to the fact that for most of 2014, the Group sold all its rayon-grade DWP to the disposed VSF plants in China at the price undertaking accepted by the Ministry of Commerce of China, which was higher than the prevailing spot market prices. Current global demand for rayon-grade pulp is estimated at approximately 5 million metric tons annually with growth primarily recorded in China. Such demand is expected to grow at approximately 4% per annum from 2014 to 2019, according to Hawkins Wright. Prospects: On specialty-grade DWP, the destocking of acetate pulp and acetate tow is continuing, particularly in China as Chinese demand for acetate tow is now projected to be lower than initially expected. Outside China, it is expected that tow orders will return to more normalised rates. However, the current abundant supply and subdued demand growth will continue to limit price increases in the short to mid term. Bracell is dedicated to continuously enhancing its product quality to meet stringent customer requirements and is confident that, despite slower demand growth in acetate, it is in a good position to further penetrate into the segment going forward to capture market share. Rayon-grade DWP prices rose from the second quarter of 2015 mainly because of higher VSF prices and some players reverted to produce paper pulp, which mitigated the oversupply situation. However, VSF prices turned down sharply towards the end of 2015, and consequently rayon-grade DWP dropped swiftly from US$900 to under US$850 per metric ton at the beginning of 2016.Looking forward, rayon-grade DWP product prices are expected to fluctuate along with VSF prices which could remain under pressure due to the weak downstream markets, depressed competing fiber prices and global economic uncertainties. Nevertheless, the Group’s three-year pulp supply agreement gives it certainty on its sales volume on rayon-grade DWP at prevailing market spot prices. The Group will continuously strive to improve operational efficiencies and maintain cost competitiveness to enable the Group to mitigate margin erosion even during uncertain market conditions. The Group will invest some capital expenditure in 2016 to further de-bottleneck its BSC plant, in order to increase its production closer to its designed capacity. The above, together with its conservative cash flow management, strong balance sheet, and an experienced management team, allows the Group to be well positioned to grow further and deliver attractive long-term shareholder value.

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